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Sources of financing to grow your business

Sources of financing to grow your business

Posted on:  , 
Author: ATB Business & Agriculture

You've likely seen the headline many times before: “Budding entrepreneur raises millions to fund dream business”. Makes you wonder how it's possible, considering how challenging it can be to raise money.

If you are looking to grow your business, there are many financing options available to you. But before you begin to explore your options further, it’s important to make sure that you understand the pros and cons of each type of financing so that you can find the option that's right for you and your business venture.

  • Bootstrapping

    Some of the most successful entrepreneurs have grown their businesses without receiving external financing. Essentially, bootstrapping is where you fund the growth of your business by reducing costs as much as possible and by investing any profits back into the business. However, this option can leave you short on cash flow in the short-term which can hinder future business growth.

  • Family and friends

    If you're lucky, you may be able to get your personal contacts to invest in your business. These financial resources are often good for short-term bridge financing or long-term investments at a very low cost. However, you may have to give up some ownership of your company, and it's not always easy mixing personal relationships with business gains.

  • Crowdfunding

    Crowdfunding gets a lot of media attention these days, often with good reason. With crowdfunding, businesses collect financial contributions (usually online) from multiple strangers who buy into their product or service. While not suitable for every venture, crowdfunding can be a great way to take pre-orders, see whether your idea is viable, and increase your cash flow at a low cost. Potential challenges include getting support for your pitch in a sea of competitors, and exposing your idea to the general public.

  • Angel investors

    Angel investors take on higher risk investments to get a larger return. Often they will ask for equity in exchange for funds, so consider whether you are willing to give away ownership of your business to an outside source.

  • Venture capitalists

    Venture capitalists are corporations that make calculated investments in startup companies that have a strong revenue stream and good potential for growth. Consider this option if you can present a strong business case, but you also need to be sure that the venture capitalist can offer you value as well. This is important, as you will likely be expected to give up equity and varying degrees of control to get the funding you desire.

  • Government grants

    Although the paperwork involved in obtaining a government grant may seem daunting, this type of financing is a great springboard to fund your business. There are many options available to you depending on the nature of your business. Also, you can speak with your ATB Financial Relationship Manager to learn more about government-backed loans.

  • Bank loans

    This type of financing can be flexible to fit your business, depending on whether you need short-term, mid-term or long-term options. The other good thing about this choice is that you do not have to give up equity in your business, and once you pay off your loan, you can terminate the agreement.

    Be that as it may, you need to be sure that you can generate enough cash flow to cover the interest payments and return the principle, as you may need to provide a secured interest on business assets or a personal guarantee when you sign the contract.

Now that you understand the basics of the financing options available, you can choose the best option for your business. For more information on how to manage the sources of financing available to your business, attend an upcoming business webinar or download one of our free business guides.

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